Home Depot bolsters housing outlook

The world’s largest home improvement retailer has reported better than expected third-quarter results.
Photo: Andrew Harrer

by
Martinne Geller

Home Depot has raised its full-year outlook, even before considering any future sales lift from superstorm Sandy, as the retailer benefited from a recent uptick in the US housing market.

The nascent recovery in housing has encouraged professional contractors to buy more in recent months. Home Depot, the world's largest home improvement chain, has also gained from its own efforts to improve distribution, cut costs and localise marketing and merchandising.

Shares of Home Depot, which also beat analysts' quarterly earnings estimates, were up 3.8 per cent at $US63.49 in midday trading.

"Our third-quarter results were better than we expected and reflected, in part, what we believe is the start of the path toward the healing of the housing market," said Home Depot chief executive officer Frank Blake.

The housing market is becoming "an assist to growth, rather than an anchor", he added.

The company said it had rung up $US70 million in third-quarter sales to consumers who stocked up on flashlights, batteries, generators and extension cords before Sandy slammed into New Jersey on October 29, the day after the quarter ended. Home Depot expects a bigger sales boost ahead because of rebuilding efforts, but could not pinpoint its magnitude or timing.

Home Depot raised its full-year sales growth forecast to 5.2 per cent from 4.6 per cent.

The company said it expected earnings of $US3.03 a share, excluding an 11-cent charge for closing stores in China. Its prior full-year forecast, given before news of the China closures, called for a profit of $US2.95 per share.

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The new forecast does not include any benefit to fourth-quarter sales from Sandy.

Home Depot derived about $US360 million in incremental sales from Hurricane Irene last year, and it forecast "at least" the same amount from Sandy. The company noted, however, that Irene had caused about $US16 billion in property damage, compared with estimates of closer to $US20 billion from Sandy.

Chief financial officer Carol Tome said sales so far in November were "quite good", with strength in the southern and western parts of the country, which the storm did not affect.

The company's outlook reflects plans to buy back $US700 million in additional shares this quarter, which would bring the total value of repurchases for the year to $US4 billion.

The forecast also implies fourth-quarter earnings of 62 US cents per share, according to Janney Capital Markets analyst David Strasser. Analysts on average were expecting 61 US cents, according to Thomson Reuters I/B/E/S.

Net earnings rose to $US947 million, or 63 US cents per share, in the third quarter from $US934 million, or 60 US cents per share, a year earlier.

Excluding a charge for closing seven stores in China, Home Depot said earnings were 74 US cents per share. On that basis, analysts were expecting 70 US cents.

"Things are going pretty well for them, with sales remaining strong," said Diedrich, who has a "hold" rating on the shares due to their valuation. "The stock has done extremely well and trades at quite a premium to the rest of retail."

Home Depot has been taking market share from rival Lowe's Cos with the help of better pricing and customer service, analysts have said. Lowe's, which has lagged Home Depot in same-store sales for 13 straight quarters, plans to report its results next week.